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Economics References Committee
Foreign bribery

McCAIRNS, Mr Gavin, Deputy Chief Executive Officer, AUSTRAC

BROWN, Mr Bradley, Acting National Manager, Strategic Intelligence and Policy, AUSTRAC


ACTING CHAIR: I now welcome representatives from AUSTRAC. Thank you so much for coming on such short notice. We really appreciate the agency making itself available to us. Did you want to make any opening remarks?

Mr McCairns : Yes, please, Senator. I would love to make some opening remarks. First of all, apologies from our Chief Executive Officer. He is dealing with Five Eyes international contemporary matters at the moment.

ACTING CHAIR: I completely understand that, and you have come here with short notice.

Mr McCairns : That is absolutely appropriate. We are always happy to help the committee. AUSTRAC is Australia's financial intelligence agency and anti-money-laundering and counterterrorism financing regulator. Our purpose is to discover money-laundering and terrorism-financing threats and risks, provide an understanding of these threats and risks, respond to these threats and risks in partnership with industry and government agencies in Australia and overseas, and regulate industry effectively. Collaboration, domestically and internationally, is at the core of AUSTRAC's approach to develop actionable financial intelligence.

Intelligence. AUSTRAC provides actionable financial intelligence to domestic and international partners—45 domestic partner agencies across law enforcement, national security, revenue protection and corruption; and formal arrangements are in place with 83 international jurisdictions. The provision of intelligence captures the spectrum of criminality, including foreign bribery.

The Australian Federal Police, through the Fraud and Anti-Corruption Centre, of which AUSTRAC is a participating agency, is the key partner for any intelligence on allegations of this nature. We have provided 11 intelligence products to the FAC in the last 12 months. In addition, our international engagement has involved in excess of 50 exchanges on corruption and related matters. Over 3,300 officers within Australia's 45 partner agencies have direct online access to query AUSTRAC's database. There are 820 users within the AFP. In the last financial year, those officers conducted over 1.8 million searches—over 200 searches in every hour of every day of the year. AUSTRAC is involved in the analysis and the evaluation of relevant material being referred to as the 'Panama papers'. As this matter is in its infancy, AUSTRAC is unable to further comment. AUSTRAC utilises its powers to seek additional information from business to enhance the intelligence picture. AUSTRAC has in place specific monitoring profiles in relation to identified high-risk jurisdictions.

Education. Apart from our intelligence capability, an important component of our work is in enhancing the understanding of risk within the 14,000 entities we regulate. In July 2015, AUSTRAC published a strategic brief titled Politically exposed persons, corruption and foreign bribery to provide information about money-laundering methods, vulnerabilities and indicators associated with PEPs and laundering the proceeds of corruption, including foreign bribery. To support the broader understanding and education on corruption, AUSTRAC created a dedicated page on its website which directs businesses to Australian and international resources. This paper and those resource links provide information to assist businesses in embedding red flags and indicators within their own transaction monitoring, and due diligence processes to surface potential suspicious activity for reporting to AUSTRAC.

Legislative framework. The objects of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 include Australia's international obligations, which reference, among other international conventions, the United Nations Convention against Corruption. The AML/CTF framework imposes a range of compliance and reporting obligations which underpin our prevention, detection and disruption efforts, including Know Your Customer; customer due diligence obligations, including identification and verification of beneficial ownership, control of customers and politically exposed persons and their source of funds; the obligation to support suspicious matter reports, noting that this obligation has an all-crime approach and is not specific to money laundering and terrorism financing; and the reporting of international funds transfer instructions.

In the last year, 91 million transactions with a value in excess of $4.6 trillion were reported. Within this quantum of information are both the opportunity to exploit rich data and the challenge to differentiate between legitimate and illegitimate activity. At its core, partnerships between AUSTRAC, domestic and international partners, and regulated businesses provide the most effective ability to combat these crimes. This is never more important than at a time in which we are witnessing rapid advances in technology, increasing digital disruption, enhanced digital identity and biometrics.

We recognise that innovative and contemporary approaches are required, including strengthened traditional partnerships and also new non-traditional partnerships. AUSTRAC is committed to enhancing the types and quantity of information and intelligence made available to the private sector in order to maximise the subsequent intelligence and investigative benefits.

Finally, international. AUSTRAC has an extensive international network of ties which enables AUSTRAC to facilitate the exchange of financial and other intelligence between Australian agencies and overseas counterparts. AUSTRAC is providing active international collaboration on areas of related interest. We have an effective working relationship with our counterpart FIU Pusat Pelaporan dan Analisis Transaksi Keuangan, PPATK, in Indonesia through technical assistance and training that has been undertaken since 2002 which involves a current intelligence exchange program. In November 2015, AUSTRAC, together with the PPATK, hosted the first counterterrorism financing summit in the Asia-Pacific region, which brought together officials and international experts from multilateral organisations and 19 countries. The resulting 'Sydney communique' is driving our collective action and response in the lead-up to the 2016 summit, to be hosted by our Indonesian counterparts. We are building capacity and knowledge in the PNG FIU through the Combating Corruption: Strengthening the Financial System against Money Laundering and Recovering Proceeds of Crime in Papua New Guinea program, which is sponsored by the Attorney-General's Department and scheduled to conclude in August 2016. Senior AUSTRAC officials have recently presented on enhanced data analytics to our colleagues in Malaysia. We are working with regional partners to develop the first regional terrorism financing risk assessment. In 2014-15, we worked with FIU, law enforcement and corruption authorities in Thailand, Cambodia, the Philippines, Bangladesh, Nepal and Sri Lanka. Thank you for the opportunity to make those opening remarks and, yes, we do have copies for the committee.

ACTING CHAIR: I have a couple of specific questions, but I want to get to some broader policy issues as well. Yesterday, the tax commissioner, Chris Jordan, gave evidence to a separate but related inquiry regarding tax minimisation matters. He made reference to the Panama papers, the Mossack Fonseca document leak, which you mentioned. An observation he made that perhaps makes sense in hindsight—but at the time I was probably looking at it through a more naive prism—was that 80 or so of the names that had already been identified were people who were known by the Australian Crime Commission as serious criminals or people who warrant looking at. Mr Jordan made the observation that, to get on these types of lists, we are not talking about people who forgot to pay a parking fine or did not drop off the car keys one day—minor kinds of offences.

Mr McCairns : Yes, I listened to him.

ACTING CHAIR: These are potentially serious criminals and some of them are serious criminals. We have been looking at secrecy jurisdictions from the point of view of them being tax havens. Mr Jordan was obviously implying that there are other reasons, as well as tax, why these kinds of jurisdictions are being used in this way. If you are hiding criminal behaviour or money laundering, a benefit may be tax minimisation. Another benefit may be not going to jail for moving blood money. I would like you to explain how secrecy jurisdictions work in relation to broader issues. We have looked at them through the prism of tax. Obviously, there are other consequences of all this.

Mr McCairns : Absolutely. I will get my colleague, Mr Brown, to talk about that in more detail, but we are absolutely involved in this. We are liaising with all agencies including the tax office. We are, in this case, not a regulator, per se, but an intelligence agency, so you can understand I would not be able to give you much information in the public domain in that sense. Suffice to say we are actively involved in this, and you are absolutely right: bank accounts or financial arrangements overseas are often not just for one purpose.

Mr Brown : I think the only thing that I would add is that you are absolutely correct in that secrecy havens can be used for a myriad of potential crimes, the disguising of potential crimes and the parking of potentially illicit funds. From our perspective, the information that we collect through the international funds transfer instructions—the 91 million transactions that Mr McCairns referred to—is the benefit and perhaps the power that we bring to the investigative options, I think, of law enforcement in Australia and the intelligence that we can assist with across that spectrum of criminal activity, and not purely just the taxation.

Senator DASTYARI: You obviously follow the money—that is what AUSTRAC is known for. You follow the money but do you follow individuals attached with money as well—or is your scope limited to the financial transactions themselves?

Mr McCairns : That is a key question.

Mr Brown : Both. All of the above. We have systems in place to look at individual entities and networks of criminals in relation to the movement of funds.

Senator DASTYARI: One of the criticisms is that there has been a failure of successful prosecution. That is because a lot of matters—it is difficult getting documents and getting the right information is difficult. But part of it also seems to be—and I wonder if this is an issue you also encounter?—the admissibility of evidence that is obtained from international sources. Could just explain how you get that information? Using a hypothetical: let us say there is what you suspect, or your assisting agency suspects, may be a corrupt payment made offshore in a 'lower' information jurisdiction—not a blatant secrecy jurisdiction, but in a Third World place where the standard may not be to the standard that we expect. I am not saying America or the UK; I am saying Africa or an Asian nation which may have a lower standard. How do you get that information? Can you just run through a hypothetical of how you would get that information—say, you think there has been a $50 million bribe paid?

Mr Brown : Not necessarily wishing to avoid the question, I think that in terms of the evidentiary standards we probably possess less information that can provide real value to the committee. But, purely based on the fact of what we will do and what our international arrangements actually permit us to do, we would seek intelligence information. If we obtain that intelligence information it is then a matter for the investigators, whichever agency might be involved, to then have a look at how they could effectively obtain the evidence. I think that sort of action—

Senator DASTYARI: If the money has never gone through an Australian account—let's say it has gone from bank account A in a foreign country to bank account B in a foreign country but we believe that payment was for services from committing a crime in Australia, or a bribe or some kind of foreign corruption—how do you obtain that information if it has never been in Australia? Is it just through the goodwill of the other agencies? Is there an international agreement that this would fall under?

Mr McCairns : Certainly, in terms of financial intelligence and the Egmont Group of Financial Intelligence Units, which is currently 155 countries, Australia and AUSTRAC are chairing the information exchange working group of that. The key outcome of that group is the ability to share information. There obviously has to be a purpose and a reason behind the sharing of that information. More often than not it will actually relate to a specific matter or an inquiry, as opposed to an incredibly large fishing expedition. That opportunity exists for us. Again—

Senator DASTYARI: For those 155 nations?

Mr McCairns : That is correct.

Senator DASTYARI: Then, depending on where the UN is up to at that point in time, there are another 40 or so nations?

Mr McCairns : Yes. In terms of Australia, we have arrangements with 83 jurisdictions at the moment. We do not have relations with all 155. They are developed over time. Our legislation permits us, under our secrecy and access, to exchange information with the broader ones but it would be on a case-by-case basis, as opposed to the actual relationships and partnerships that we have established.

Mr Brown : To give you context, because it is a great question—very much so—we are about intelligence. We are about gathering intelligence and providing actionable intelligence to other entities, either onshore or offshore as it were. Quite frankly, we will enter into legal relationships with anyone who will provide us with decent intelligence. The answer, hypothetically, to your $50 million question is 'yes'. We might get that intelligence but, yes, you are right: it is on the behest on the other nation or the other entity. We would then gather that intelligence—obviously, the trade craft I will not reveal.

ACTING CHAIR: Of course.

Mr McCairns : We would use our own trade craft to consider that intelligence and then provide it to other onshore or offshore entities that may find that useful.

Senator McALLISTER: Thank you very much for your evidence this afternoon. I actually wanted to ask you about one of your definitions. I am interested in what a 'politically exposed' person is. I think that was a new term for all senators.

Mr McCairns : That is quite old news now, Senator. My colleague, Mr Brown, will absolutely be happy to explain that.

Mr Brown : The Financial Action Task Force, which is the global body that sets out the standards for anti-money-laundering and counterterrorism financing, was established in 1989. Within its 40 recommendations, one of those—recommendation 12, in fact—relates to the fact that you are required to identify politically exposed persons, and they actually have a specific definition. In the report we produced in July 2012 we have a definition. There is now a definition in the Anti-Money Laundering and Counter-Terrorism Financing Act. It includes heads of state or government, senior government officials, high-ranking members of the armed forces, board chairs, chief executives and chief financial officers in state enterprises or international organisations, and it also includes immediate family members and close associates of a politically exposed person.

Mr McCairns : This is a public document, so we are happy to make it available. In fact, it is on the website.

Senator McALLISTER: I suppose that is a subset of the things that we might be interested in here in terms of thinking about foreign bribery. In some instances it might be a politically exposed person, but in other instances it is simply a public official who is not involved in politics in that way.

Mr McCairns : Absolutely.

Senator McALLISTER: Your brief extends beyond that. It is only one element of your brief as well; you are interested in the full gambit of criminal activity.

Mr McCairns : If that is report is useful to you it might give some context on our lens on that specific matter. Thank you, Senator.

Senator XENOPHON: In AUSTRAC's role, it monitors and analyses financial transactions in more than 100 countries. Does that include countries such as Panama, where there are secrecy provisions in respect of their tax?

Mr Brown : We have the capability to monitor the activity that is coming in and out of Australia of all other countries in the world.

Senator XENOPHON: Including Panama?

Mr Brown : Including Panama.

Senator XENOPHON: That is music to my ears. One of the questions I put to Commissioner Jordan from the ATO is whether there ought to be almost a reverse onus of proof or a presumption that if a company is operating in a tax secrecy haven there ought to be consequences flowing from that, including much tougher questions and the like. So you are able to give useful information in respect of those jurisdictions where tax secrecy applies?

Mr Brown : We can certainly provide the information insofar as where we find the link in the transactions between Australia and that particular jurisdiction. There are some challenges in relation to it because oftentimes there may be funds that have moved through third-party countries. So it goes from country A to B to C to D—

Senator XENOPHON: But you can still track them; it just means more work.

Mr Brown : More work and ultimately the relationships that we have with other countries in the world.

ACTING CHAIR: There is just a follow-up I have, Mr Brown: what can occasionally happen, you were saying earlier, is it goes into a black hole. So you can follow it to the US, the UK, China and countries we have relations with, but then, if it suddenly goes, you can suddenly lose it at some point.

Mr Brown : Absolutely. That certainly can be the case.

Mr McCairns : We have to be careful that we do not stray into matters of policy. That is for our host department, the Attorney-General's Department—

Senator XENOPHON: I would never want you to do that; I just want to know what you guys can do.

Mr McCairns : the minister, the government or, indeed, the parliament.

Senator XENOPHON: I would never want you to stray into matters of policy. But the fact that you can monitor jurisdictions which have enveloped tax secrecy is very useful.

Mr Brown : Again, to clarify, it specifically relates to the transactions that are reportable from our 14,000 reporting entities, which obviously includes the major financial institutions, on activity in and out of Australia.

Senator XENOPHON: Without straying into matters of policy, because I would never want you to get into trouble with your minister—

Mr McCairns : The department is more scary.

Senator XENOPHON: The department is more scary? I think ministers are usually scared of their departments, as a general rule. In respect of that, has AUSTRAC received useful information either directly or indirectly from whistleblowers in order to be able to do your work?

Mr Brown : We might have to take that particular question on notice.

Mr McCairns : Let me give context while you are considering it, Brad. We also have a call centre, for want of a better term, and we take calls from anyone. It could be the public, but it could be an institution seeking clarification about the regulatory environment.

Senator XENOPHON: But without you commenting on policy, if people came forward with inside information about dodgy practices—to put it bluntly—you would not be against the receiving that information if it helps you with your lines of inquiry.

Mr McCairns : As we are an intelligence agency we are avaricious about any sources of information or intel that can provide help paint a picture to assist others.

Senator XENOPHON: And some of us here are avaricious about whistleblowers to receive compensation for the protection. So our mutual avarice may have a public benefit.

Mr McCairns : As usual!

Senator McALLISTER: I have a follow-up on that same question about how you determine your priorities. There is obviously an enormous volume of data and you must make priorities about what you examine and how. Is that a supply-side or a demand-side proposition? Is it your partners coming to you saying, 'We would like actionable financial intelligence on this bundle of things,' or is it you examining a pile of data and identifying anomalies and alerting partners?

Mr McCairns : A great question again. It is both, in actual fact. Again, without revealing tradecraft, we would have tradecraft around intelligence, tradecraft around regulation and tradecraft around compliance and what we would follow rather than set on the backburner. But the answer is absolutely both. So we can be required or requested by a partner agency onshore or offshore to look into something—and we would almost certainly always do that—or indeed, via our own tradecraft we would then have a priorities matrix, as you say, and we would follow that matrix. However, we want to be really agile here. If I can be bold: an old-fashioned regulatory model is kind of an inorganic, Cartesian framework.

Senator McALLISTER: That sounds dreadful!

Mr McCairns : We want to be an organic, agile framework.

Senator XENOPHON: Agile? It is an interesting word, agile.

Mr McCairns : I mean that in the technological sense.

ACTING CHAIR: It is a Turnbull word. Senator Xenophon is being facetious!

Mr McCairns : In a technological sense. I would not be discussing anything the Prime Minister may say or may not say. Agile in the sense of—what I was trying to get at—just because we are down one pathway, if something new came in that we thought was very, very useful, we would absolutely grab that and run with that.

Senator McALLISTER: Finally, I ask what the governance structure is for you in terms of oversight. Who do you answer to?

Mr McCairns : The Minister for Justice, but we are hosted under the Attorney-General's portfolio.

ACTING CHAIR: I am conscious of time, but there are two quick matters I would like to touch on—one specific and then one broader one. I think we have a broad understanding of how the work AUSTRAC does in monitoring Australians and Australian money, but if there is to be a major international purchase of an Australian asset—you know, potential big foreign investments—do you then look at where the money for those transactions comes from on the other side of it, or do you not? Do you see where I am coming from? Let us say there is an energy retailer, a big farm or something that is been looked at by the Foreign Investment Review Board. Do you play a role in seeing where the money for that project is coming from as well?

Mr Brown : We certainly have a relationship with the Foreign Investment Review Board and we may be able to provide assistance to them, where possible, in relation to that. There are, no doubt, challenges in relation to working backwards. The example of where you move from one jurisdiction to the next describes that challenge that we do face, but it is also not insurmountable that we cannot go back to a jurisdictional partner and seek to get additional intelligence information from them in relation to source of funds et cetera, if it is available to them.

Mr McCairns : Indeed, I can give an example.

ACTING CHAIR: But you do it on their request? They can come to you?

Mr Brown : Yes. I would just clarify—in terms of the FIRB?


Mr McCairns : To give you an example—I just joined AUSTRAC three months ago from a small boutique agency called 'immigration', and I am glad I am not answering questions to Senator Xenophon on foreign crew movements!

Senator XENOPHON: I think Senator McAllister will probably have more interesting questions!

Mr McCairns : But that was another time and another place. For example: the special investor and premium investor visa that the Department of Immigration and Border Protection launched at $5 million—and I think it was $10 million or $15 million; I cannot remember now—the source of funds was one of the key things I looked at from that perspective, and my partner in doing that back then was AUSTRAC.

ACTING CHAIR: Okay. One last question. Australian companies obviously have reporting obligations under the Anti-Money Laundering and Counter-Terrorism Financing Rules and that is seen as one of the proactive measures. Without going to your tradecraft, I imagine you have algorithms that you run on this stuff and that things that are peculiar and strange obviously set off red flags.

Mr Brown : Absolutely.

ACTING CHAIR: Would you have any statistics—and I am not sure if they were in the first set of statistics you read through—about how much information you receive and how many red flags there have been?

Mr Brown : Certainly, in the last financial year I do not think we mentioned the number of suspicious reports that were provided to us independently—which is subjective reporting by the businesses—but I think there were approximately 81,000 suspicious reports that were provided to us in 2014-15. Within each one of those reports, the business will provide some indication of the type of misconduct that they thought they were assessing and then our own capabilities, internally, will also provide our assessment of that as well, which can actually be both manual and technological in terms of what our capabilities do.

ACTING CHAIR: Is failure to report a crime?

Mr Brown : Failure to report?

ACTING CHAIR: I just want to check whether it is in the Criminal Code Act or the Corporations Act. I should know this, but I do not. If I am a business with a reporting obligation and there is what should be deemed a questionable transaction—and that is obviously subjective, and that is a matter for the courts—I have a legal responsibility to report, correct?

Mr McCairns : Correct.

Mr Brown : Yes.

ACTING CHAIR: If I fail to do that, is that a criminal or a civil penalty? Do you know if that falls under the Corporations Act or where it falls? You can take that on notice.

Mr Brown : Certainly, there are offences under the Anti-Money Laundering and Counter-Terrorism Financing Act for nonreporting and nonreporting against the requirements of our rules. There are various different offence provisions that exist. Whether there are additional provisions within the Corporations Act, I could not comment on that.

ACTING CHAIR: Thank you, Mr McCairns, and Mr Brown. That was a really interesting insight. Thank you for coming on short notice. I now adjourn this meeting of the Senate Economics References Committee inquiry into foreign bribery.

Committee adjourned at 13 : 33